Tech Hits New All-Time Highs: Stay Bullish or Take Profits?
Technology stocks reached new record highs as strong earnings growth continued to support the sector. Earnings have improved faster than prices overall, which has kept valuations relatively unchanged. Both momentum and underlying fundamentals have driven the performance, and the sector's ability to move higher will likely depend on whether that earnings strength can be sustained.
Back on March 23rd, I called for a near-term bottom in technology stocks when the State Street Technology Select Sector SPDR ETF (XLK) was trading at $136. The setup was simple: tech was oversold and the earnings weren’t letting up like the price was; valuation fell as it was attacked from both sides, a great setup to buy into. Tech was leading the bleed in U.S. stocks after the opening of the U.S.-Iran war, and the bears were out in force. But now that the conflict has matured and there appears to be light at the end of the tunnel for many traders, XLK now sits at a new high, just above the zone I said I would take profits in. The question now is whether tech has more room to run or not. To me, the fundamental case looks stronger than before, and it’s difficult for me to justify exiting even if the technicals look overbought.